DCF
Fundamental analysisDiscounted Cash Flow — valuing a business as the present value of its projected future cash flows.
In plain terms
Its real output is a range and a set of stated assumptions, never a target price.
1678 terms
Glossary
Every term is defined twice: once the way a filing would put it, and once the way somebody would explain it to you across a table. The second one is usually the one that sticks.
Showing 9 terms
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Discount rate
Fundamental analysisThe annual rate used to convert future cash flows into present value, reflecting time and risk.
In plain terms
Your required return. Change it by two points and the valuation moves by a third.
Dividend discount model
Fundamental analysisAlso called: DDM, Gordon growth model
Valuing a share as the present value of all the dividends it will pay.
In plain terms
The Gordon growth version is next year’s dividend ÷ (required return − growth). Very sensitive to the gap between those two rates.
Embedded value
Fundamental analysisA life insurer's net worth plus the present value of future profits expected from policies already sold.
In plain terms
The book-value equivalent for insurers, and a model rather than a measurement. Shift the assumed lapse or discount rate and it moves materially, which is why the sensitivity tables matter.
Gain on assignment
AccountingAlso called: Gain on derecognition of assigned loans
The present value of the excess interest spread on a sold loan pool, recognised in income at the moment a transfer qualifies to come off the balance sheet.
In plain terms
Future interest brought into this quarter. It does not repeat unless another pool is sold, and it rests on disclosed assumptions about prepayment and default that reduce the spread actually collected.
Human life value
Risk & psychologyAlso called: HLV
The present value of a person’s future income, used to size life insurance cover.
In plain terms
What your family would actually need to replace, discounted to today. Far more honest than "ten times salary".
Intrinsic value
Fundamental analysisThe present value of all cash a business will generate for its owners over its life.
In plain terms
What it is actually worth, as opposed to what it currently trades at.
Lease liability
AccountingThe present value of future lease payments, recorded as a liability.
In plain terms
Frequently the largest single line on a retailer's or airline's balance sheet, and invisible before 2019.
Value of new business
Fundamental analysisAlso called: VNB
The present value of the expected profit from the life insurance policies sold during the year.
In plain terms
The closest thing an insurer has to real annual earnings, because reported profit is depressed by the selling costs of the very policies that created the value.